More Stories

Informist, Monday, Mar. 2, 2026

 

By Shubham Rana

 

NEW DELHI – The US-Israel attack on Iran over the weekend and the ensuing retaliation has pushed up crude oil prices, raising concerns over a possible spill over to India's benign inflation and growth outlook. Economists, however, don't expect a major impact on prices and economic activity in India in the near-to-medium term, with inflation seen rising only if crude oil prices sustain over $80 a barrel for over a year.

 

Israel and the US Saturday attacked Iran, killing hundreds, including the country's Supreme Leader Ayatollah Ali Hosseini Khamenei. Iran has since retaliated against Israel and targetted US military facilities around the Persian Gulf. According to reports, the Iranian military has ordered the shut-down of the Strait of Hormuz, a passage which is used to transport about a third of the world's crude oil.

 

As tensions escalated, crude oil prices have risen sharply to around $80 a barrel from less than $70 a barrel. For India, which imports over 85% of its crude oil, a rise in oil prices threatens higher inflation. According to Kepler, which tracks seaborne shipments, about half of India's crude oil imports--primarily from Iraq, Saudi Arabia, the United Arab Emirates, and Kuwait--currently pass through the Strait of Hormuz, making the country particularly vulnerable to shipping bottlenecks and surging freight rates.

 

"Prolonged issue, of course, is a bigger problem but that is not our base case at the moment. In the event of prolonged tensions with a longer closure of the Strait of Hormuz, there is a possibility for oil to move to a higher range of $90-110 per barrel," Sakshi Gupta, principal economist at HDFC Bank said. "I don't expect a rise in retail inflation immediately."

 

The Reserve Bank of India estimates that if a 10% rise in crude oil prices is fully passed through to domestic prices, inflation can rise by 30 basis points and growth can fall by around 15 bps. "...but this is based on the old inflation series, while the new one has doubled the combined weightings of petrol and diesel (to 4.8% from 2.3%), which should also raise the sensitivity of CPI inflation to oil price changes, if fully passed," economists at financial services group Nomura said in a report. 

 

Higher crude oil prices are unlikely to be passed on to consumers in India, as has been the case over the past few years when retail prices have remained broadly stable even as crude oil prices have fluctuated sharply. India last raised petrol and diesel prices in October 2024, a marginal 5 paise increase. "Therefore, we see a much lower impact of around 0.1pp (10 bps) on inflation and GDP growth," Nomura economists said.

 

Economists expect retail inflation in India to rise to around 4% in the financial year starting Apr. 1 from near 2% in FY26. CPI inflation was 2.75% in January, based on the new series with 2024 as the base year. 

 

GDP growth is seen at 7-7.5% in FY27, lower than 7.6% projected for the current year by the government's second advance estimate. India's GDP grew 7.8% in the December quarter, as per the new series with 2022-23 (Apr-Mar) as the base year. 

 

"Immediate need to increase retail fuel price does not exist as pump prices did not change when oil was trading in mid ($)60s," Anubhuti Sahay, head of India economic research at Standard Chartered Bank, said. "Oil companies, in our view, are likely to absorb higher oil prices in the near term. Thus, we don't see an immediate impact on inflation and growth."

 

If the conflict in West Asia is prolonged and supply disruptions become more durable and oil prices stay above $80-$85 a barrel on a durable basis, India's macroeconomic metrics--inflation, growth, fiscal deficit and current account deficit--can come under pressure, Sahay said. 

 

"But we are not there yet," Sahay said. Oil price increase has been contained and the Organization of the Petroleum Exporting Countries and its allies have also talked about raising oil output, she added. A regime change in Iran could lead to a dismantling of its sanctions, and India could benefit from the increase in global supply of crude oil as a consequence over time, Nomura said.

 

"From a growth perspective, we have alternatives for sourcing oil. We can always explore whether we want to buy more from Africa, Latin American countries, US, Russia," Gupta said. "We have around 70 days' worth of oil reserves to cover short-term supply disruptions."  End

 

US$1 = INR 91.47

 

Edited by Deepshikha Bhardwaj

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.